What might a system that benefits businesses look like? To start, it could provide tax predictability. That would mean a federally uniform unemployment insurance tax with no variation across states and no experience rating.
One might argue that if unemployment insurance is a program for workers, then workers should pay the taxes. But all businesses benefit from stable family incomes and consumer demand, especially during recessions.
Still, unemployment insurance could tap more sources of revenue. For instance, in Alaska, New Jersey and Pennsylvania workers contribute to a shared employer-employee tax, similar to Social Security. More workers could be brought into the program by requiring contributions and giving permanent eligibility to independent contractors — again, like Social Security.
Beyond making unemployment insurance less of a burden, reform can be designed to benefit businesses directly. There’s a pandemic blueprint for this, too: the Paycheck Protection Program. While it was mired in fraud and missed many eligible people — not a surprise for a crisis-era program with a mandate to spend hundreds of billions of dollars quickly — it was a life raft for many businesses and is estimated to have saved millions of jobs.
The principle behind the P.P.P. — that directly reducing payroll costs during a downturn saves jobs and reduces unemployment — is supported by decades of evidence. A system using pooled-tax contributions to provide temporary payroll relief to businesses in acute need could prevent layoffs and make businesses beneficiaries of a program they have long bankrolled.
Of course, some businesses may prefer to lay off workers rather than reduce their pay or accept government help. Yet, there is an assumption that goes hand-in-hand with layoffs: That there is a ready pool of workers to hire back when the economy grows again. In this recession, much like the last one, employers have struggled to quickly find qualified workers to fill positions.
Congress can continue ignoring unemployment insurance and limp through each new crisis, applying expensive, short-term fixes each time. Or it can provide workers and businesses with the certainty of an effective, efficient program that will withstand the next crisis.
Kathryn Anne Edwards is a labor economist at the nonprofit, nonpartisan RAND Corporation and professor at the Pardee RAND Graduate School. Her research focuses on the interaction of public programs, labor supply and earnings.
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